Is Oracle Really Going After EMC?

It’s said that where there's smoke there's fire. So let’s try and read the smoke signals from Wall Street over the past two days that suggest Oracle (news, site) is in the market to buy EMC (news, site).

For the moment that is about as concrete as it gets apart from reports in the Wall Street Journal that show shares in EMC jumped by nearly five percent on Thursday after a Citgroup analyst report released on Wednesday suggested the storage giant might be a target for Oracle

Might be, the report said, listing it as a long shot, along with a number of other possible acquisitions including business service management provider BMC and healthcare software provider Cerner.

However, even the mention of EMC in the same breath as take-over was enough to send its shares rocketing to US$ 21.29 per share, just 50c shy of its 52-week high. At the same Oracle’s share’s dropped 1.16%, which only fed the rumor-mill and some very intense and wild speculation.

However, for those that dismissed it out of hand and for those that speculated it was a done deal, the possibility of Oracle buying EMC is not outside the realms of possibility. It might not happen immediately, but it could happen in the next 18 months.

EMC and Virtualization

Oracle has been on a bit of a spree recently -- as many others have -- although something quite as rich as EMC, which has a market capitalization of close on US$ 44bn, would probably not have been considered two years ago when virtualization and virtualized storage were not the buzz words they are today.

And it is this that Oracle, if it does target EMC, will be looking at. EMC owns 80% of VMware (news,site) which is the undisputed leader in server virtualization, a key element of cloud computing and one which was identified by CEO Larry Ellison as one of the things Oracle was really interested in at the recent Open World.

With this, Oracle would able to scale its storage in a way it can’t do at the moment as well as offer whatever else VMware has got under its intellectual property hat at the moment.

However, there would be problems with this deal that make any kind of negotiations between the two companies unlikely in the near future, not to mention the technology issues that would ensue for Oracle, which is still integrating Sun and would have to integrate not just VMware but EMC too at the same time.

How Much for EMC?

The principal problem is price. EMC is the storage heavyweight at the moment, while VMware is the virtualization king with 80% of the market.

The result is that even starting prices are going to go off the scale given not only EMC’s massive hardware portfolio, but also because of the rising Clouds and VMware’s growth prospects in that market.

Some initial figures being thrown around financial websites this morning start at US$ 50bn. Oracle could undoubtedly afford this, even it had to issue new stock and upset shareholders including Larry Ellison, but it would get them EMC.

However, US$ 50bn is likely to be only the starting price and the chance of other gorillas like IBM, HP and Cisco letting Ellison have a straight shot at EMC without competing bids is non-existant.

As to where that would end is anyone’s guess, but you may recall earlier this summer when HP went after 3Par and had to pay US$ 2.35 bn after a bidding war with Dell -- over twice the price that Dell originally offered.

Should Oracle Buy EMC?

There is also another consideration that needs to be taken on board. Oracle and EMC have been in competition for some time in the data warehousing market, a competition that has yet to run its course to see who will come out as top dog.

If Oracle can take that position then why pay a huge amount of money for it, especially when there are other things that might be bought to complete Oracle’s stack. It’ll take a year anyway to see this battle through so it is unlikely that Oracle will be looking at any moves in this direction before that runs its course.

There is little doubt that Oracle is angling to make space for itself at the top table in cloud computing and, from its point of view, preferably pushing IBM (news, site) or HP (news, site) to a lower tier.

While that may be as likely as snow on July 4th, everything is about perspective. There was snow this year on Mount Washington in New Hampshire on July 4th, which however unlikely, happened anyway.

While Oracle buying EMC is probably just as unlikely at the moment, who knows what conditions will be like next year. Stranger things have happened.